Debt Ceiling Debate: Similarities To FDR's New Deal

FDR's The New Deal wasn’t as successful in the short run because he listened too much to conservatives of his day telling him to cut New Deal stimulus spending and balance the budget. Nobel prize winning economist Paul Krugman says, "The New Deal wasn’t as successful in the short run as it was in the long run was the fact ... that his economic policies were initially too cautious."

FDR was swayed by the conservative argument and signed a deep budget cutting budget bill for one Congressional budget cycle during the mid part of his first term. Those cuts pushed the economy back into rapidly contraction. The double-dip recession caused by that "balanced budget" legislation almost derailed FDR's chance to be re-elected for a second term.

Fortunately, the economist John Maynard Keynes convinced FDR to renew his new deal spending push with congress in time win re-election, but it was close. FDR was quick to learn the lesson - will Pres. Obama learn that lesson soon enough to win re-election?

The months-long effort to raise the nation's debt ceiling has felt like an unprecedented political debate to redefine the government's role in society for years to come. As a country, however, we've experienced this before.

The current debate is remarkably similar to mid-1930s fight over Franklin Roosevelt's New Deal -- right down to the rhetoric used, the policies suggested and even the talking points deployed.

"In both cases you have a president who inherited an economy effectively in free-fall and who responded by extending the reach of the federal government," said William Howell, professor of American Politics at the University of Chicago, on the historical similarities between the Roosevelt era and today.

Take, for instance, a June 10, 1935, New York Timesreport under the sub-heading, "'Grass Roots' Leaders See National Crisis Similar to That of Lincoln's Day," that seems to mirror the type of fiscal conservative angst that is driving the hyper-austerity mentality today. The piece describes a meeting of "6,500 delegates representing the active Republicans, young and old, of ten Midwestern states," all clamoring for "a militant Republican party which will show the courage of earlier days" in its opposition to Roosevelt's policies.

In the article, Republican Committee member William G. Skelly framed the ethos behind Republicans' opposition to aspects of the New Deal in terms not unlike those of today's Tea Party. Skelly said, "When States lose their sovereignty, then democratic government is dead and America will be under a bureaucratic despotism. It would be fascism or Hitlerism." (Nazi Germany, of course, had not at that point been fully realized.)

Bombastic rhetoric is a common feature of American politics, not confined to any one presidency or generation. But the parallels go beyond that. The balanced budget amendment that modern conservatives are making a precondition for raising the debt ceiling was actually conceived of during the mid-1930s as a response to the New Deal. The legislation was introduced in 1936 by Minnesota Republican Congressman Harold Knutson, who like other Republican legislators, made the ballooning national debt one of his favorite political targets.

Not unlike today, the New Deal debate pitted those advocating government spending on infrastructure, unemployment benefits and other forms of economic stimulus (the remaining points of emphasis for President Obama), against those demanding a balanced federal budget. A February 2, 1936, Timesarticle detailing the Federal Deficit had the following criticism of fiscal policy under Roosevelt:

"The most disturbing aspect of the Treasury's heavy borrowing is the failure of the government's deficits to show a decline proportionate to the unquestioned recovery which has taken place in American business. Mr. Roosevelt submitted a budget which was intended to show a smaller deficit. But the bonus and farm situation have upset his calculations, unless the government resorts to additional taxation."

The Times outlined the Federal budget deficit in the same article with the chart below:

As is the case now, outside advocacy and influence groups were spouting up with a keen focus on fiscal issues. As June 1, 1936, New York Timesarticle chronicled the efforts of the Economy League, an independent group headed by New York investment banker E. Roland Harriman, which urged both parties to insert a balanced budget plank into their political platforms. Wrote the Times:

"The plank declares that 'the stability of the national finances is the first requisite of the national welfare,' while a resolution incorporating the proposed plank adopted by the managing committee stresses the "danger to the national credit" lurking in successive Federal deficits since 1931 which it said have increased the national debt by more than $18,000,000,000 to a total which by June 30 will be in excess of $34,000,000,000."

Meanwhile, on the campaign front, GOP candidates attempted to balance support for both subsidies and deficit reduction across primary states, spurring charges of hypocrisy that have tripped up today's Republican field. Take, for example, the following September 24, 1936, New York Timespiece on Arkansas Democratic Senator Joseph T. Robinson.

"Another weakness, which in my judgment is being recognized by those who have read the Governor's (Landon's) speech, is found in the fact that in one breath be advocates balancing the budget and in the next recognizes the necessity for continuing, while present conditions exist, great expenditures from the Treasury for cash benefits to farmers and for unemployment relief."

And then there was the popular angst that the welfare state was sapping energy from the economy itself -- an oft-discussed feature of Tea Party rallies and modern legislative debates alike. On November 24, 1934, The New York Times printed prominent Chicago businessman George J. Dunbaugh's letter to the editor, which issued the following warning:

"We cannot spend our way back to good times. We cannot borrow our way back to prosperity.

In the old days the poorhouses used to be full of people who had thought they could become economically independent by borrowing instead of by earning and saving. I think it's time we all straightened up and stopped trying to push Uncle Sam into the same kind of a poorhouse. Uncle Sam is just ourselves, the whole 125,000,000 members of the great American family."

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